1 eFX Daily colour

1.1 FX Spot

1.1.1 Overview

(Feb-10) Asian markets are expected to open on a shaky note after President Donald Trump announced tariffs on all steel and aluminum imports. This has led to a drop in commodity currencies and a decline in Asian stock futures. The Australian, New Zealand, and Canadian dollars, as well as the euro, fell in early trading. Equity futures in Australia, Japan, and Hong Kong are also pointing down.

Trump’s comments have added to market jitters, with a 25% levy on steel and aluminum imports set to be announced on Monday. This comes ahead of Federal Reserve Chair Jerome Powell’s upcoming testimony, which will be crucial in assessing the impact of these tariffs.

SA still under pressure at the back of the expropriation bill.

The S&P 500 index fell by 1% on Friday due to tariff concerns and a decline in consumer sentiment. The dollar rose after jobs data showed a healthy labor market. Nonfarm payrolls increased by 143K, with the unemployment rate dropping to 4.0%.

In Asia, Chinese shares will be closely watched, especially in the tech sector, as the Lunar New Year spending boom may mask underlying deflationary pressures in the economy. Goldman Sachs economists noted that the seasonal boost in China’s inflation is likely to turn into a drag in February.

1.1.2 US

(Feb-06) US Jobless claims rose by 11K to 219K for the week ending February 1, staying relatively low. This level is consistent with pre-Covid figures, and private employment data indicates strong hiring in January. However, despite a calm January, several major companies have announced staff reductions for early February, hinting that the quiet period may be short-lived. USDZAR saw a slight rally after this to a low of 18.5740 on a 15min window.

(Feb-10) The dollar made some inroads on a daily basis, now trading 108.19 vs friday’s close of 108.09. Gold reached a record high of 2911.04$/oz due to President Donald Trump’s plan for steel and aluminum import tariffs, causing market disruption. Both the dollar and gold rose as demand for safe-haven assets increased amid the trade threats.

1.1.3 SA

(Feb-10) There has been a fallout in relations between South Africa (SA) and the United States (US) following the introduction of the land expropriation act. Despite efforts by SA to clarify the act and provide accurate information to the US, the US has decided to halt all aid to SA while an investigation is ongoing. This decision has negatively impacted the Rand, which has lost some of its recent gains against the USD. The ZAR, which saw a low at 18.32 last Friday (07 Feb), and we opened today trading above 18.60, which is the ZAR under pressure region. Additionally, the African Growth and Opportunity Act (AGOA) is now at risk, further straining economic relations between the two countries.

  • ZAR has since made some gains, now trading at the 18.50 lvls, signalling that the market is not yet too worried about these developments.

1.1.3.1 eFX Volumes

  • Overall volumes

(Feb-10) On Friday (07-Feb) we saw a turn from balance or net short USDZAR position to being net long USDZAR from clients. (*) This is not surprising given the recent growing tensions between SA and the US.

  • Price to volumes

(Feb-10) Latest implied topside is 18.65 but we could go higher if there is not indication of a de-escalation between SA and the US.

  • Liquidity hours across currency pairs
  • Currency positions

(Feb-10) Clients are now net-long USDZAR.

1.1.3.2 USDZAR levels

(Feb-10) We saw the market gab in the early morning and ZAR gained some lost ground now trading at 18.41.

1.1.3.3 USDZAR spreads

  • (Feb-10) ZAR benefits from:

    • Gold hits all time high of 2911.04
    • JSE Top 40 also trades record high at 80139.26
    • DXY trades lower compared to open. We note however that USD has made some inroads given Friday’s close was 108.04 and we were trading higher than that today.

1.1.4 Key events this week:

  • China’s retaliatory tariffs on US goods are scheduled to take effect, Monday
  • Fed Chairman Jerome Powell gives semiannual monetary policy testimony to Senate Banking Committee, Tuesday
  • US CPI, Wednesday
  • Fed Chair Jerome Powell testifies to House Financial Services panel, Wednesday
  • UK industrial production, GDP, Thursday
  • Germany CPI, Thursday
  • Eurozone industrial production, Thursday
  • Norges Bank Governor Ida Wolden Bache gives annual address, Thursday
  • Eurozone GDP, Friday

1.2 FX Volatility Update

1.2.1 Update

By Thuto Mukena - Institutional Sales Specialist (Feb-10)

  • Overview

USD/ZAR implied vols eased on Friday as weaker-than-expected U.S. payrolls reports (143k vs. 170k cons.) supported ZAR gains. The pair extended its weekly resilience, closing firmer at R18.4146/$. Consequently, 1-week implied vol declined by 1 vol points to 12.22%, tracking spot moves. This morning, the local unit steps in the red and has reversed Friday’s gains , pulling local implied vols higher following the U.S. decision to officially withdraw financial aid to South Africa. Initial reaction from open saw spot levels stage a brief recovery to R18.6444/$ in the early hours, however that momentum higher has dried down. This week all eyes shifts to the U.S. CPI print, which will be pivotal given Friday’s upside surprise in average hourly earnings (4.1% y/y vs. 3.8% cons.). The 1-week USD/ZAR volatility risk premium now stands at 4.47%, above its 1-week average as the market braces for the week ahead.

  • EM & G10

Friday’s session saw a broad risk-off tone, with EM and G10 currencies mostly lower. Despite this, implied vols reflected a more measured reaction as markets digested the U.S Payroll figures. AUD/USD 1-week implied led declines, down 72bps, followed by USD/CAD 1-week implied vol (-76bps). The high beta space saw similar momentum, USD/MXN and USD/CNH 1-week implied vols dropped by 58bps and 22bps, respectively.

1.3 Africa

1.3.1 Update

By sizwe Mfayela - Institutional Sales Specialist (Feb-10)

  • Egypt
    • Osama Rabie, the Suez Canal Authority chief expects traffic in the canal to pick up by late march and potentially reach full recovery by mid-year, provided the Gaza ceasefire is maintained.
  • Ethiopia
    • Ethiopia is in the final stages of debt restructuring negotiations with its creditors under the G20 Common Framework. This after the country defaulted on its $1bio Eurobond in 2023. A memorandum of understanding with creditors is expected to be finalised by April when the country is due for its third IMF review.
  • Ivory Coast
    • Tidjane Thiam, former Credit Suisse CEO has given up his French citizenship as he prepares to run for the Ivory Coast presidential elections in October.
  • Mauritius
    • Mauritius Jan YoY CPI increased 1.9% vs 2.9% in Dec. 
  • Mozambique
    • Fitch ratings agency has downgraded Mozambique’s long terms foreign currency debt to CCC from CCC+. This as a result of Fitch seeing the country’s 2024 budget deficit increasing to 6.5% of GDP due to the Oct 09 post-election riots which disrupted business activity. Venancio Mondlane announced he will be starting his own political party this year, following his exit from the Podemos party.
  • Rwanda
    • The United States has cautioned of possible sanctions against Congolese and Rwandan officials over the escalating violent conflict in the DRC.
  • Eurobonds
    • SSA closed spreads 4-15bps wider after a pickup in volumes on Wednesday/Thursday, a similar movie we have seen on heavy price action days where we see a significant drop in, with little client interest to sell into weakness except in small size by the street and ETFs. SOAF traded heavy in both cash and synthetics on hedge fund and street selling. This comes despite the strong performance in the currency, and the curve looked quite steep with duration being the heaviest part of the curve.
  • ZAMBIA
    • The 53s continued to put in a strong performance on what seems to be more a competitor’s note than the IMF headline on Thursday.
  • IVYCST
    • Has been the most resilient among the mid-beta credits, with the street trading short, while at the close some of the EUR paper was coming out.
  • MOZAM
    • Real money was selling a small clip into the recent street and fast money led bid on-the-back of Total’s LNG optimism and the IMF visit headlines.

1.3.2 Economic data

Economic data releases